A derivative means an instrument whose value is derived. It has no value of its own. Its price is based on the underlying asset. As we all know that the transaction of derivatives are taxed under the head Business & Profession in the Income Tax and comes under the Tax audit preview u/s 44AB of the Income Tax Act. Now the question arises that the turnover of derivative is also considered in the taxable supplies under GST and GST Audit is applicable on that?
Turnover of Derivatives for Taxation Purpose:
Aggregate of favourable and unfavourable differences are taken as turnover. So Aggregate of both positive as well as negative differences will be taken together to calculate turnover in case of derivatives, futures & Options transactions. Or in simple words both profits and losses will be added to calculate the turnover. Premium received on sale of options and difference in reverse trade entered should also be included in the turnover.
Turnover of Derivatives for GST Purpose:
To understand the whether the turnover of Derivative is included in the total turnover for GST Audit Purpose, Lets evaluate the definition of Turover under the GST Law:
What is the Aggregate Turnover under GST
As per Section 2 (6) of the CGST Act 2017 “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;
So Aggregate Turnover under GST includes:
~ aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis)
~ exempt supplies
~ exports of goods or services or both
~ inter-State supplies of persons having the same Permanent Account Number
~excludes central tax, State tax, Union territory tax, integrated tax and cess;
Lets Analysis each type of turnover which is included in the Total Turnover
Definition of Taxable Supply: Section 2 (108) of the CGST Act 2017 “taxable supply” means a supply of goods or services or both which is livable to tax under this Act;
Definition of Exempt Supply: As per Section 2 (47) of the CGST Act 2017 “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;
Definition of Goods: As per Section 2 (52) of the CGST Act 2017, “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;
Definition of Services: As per Section 2 (102) of the CGST Act 2017, “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
Explanation.- For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or arranging transactions in securities;.
So it is clear from the above definitions that money or securities are not considered as goods or as Services under the GST Act. Now let’s analys the definition of Securities.
Definition of Securities: As per Section 2 (101) of CGST Act 2017, “securities” shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956;
Derivatives are covered under securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956. Further Securities is excluded from definition of goods u/s 2(52) of CGST Act, 2017 & and also Securites are excluded from the definition of services u/s 2(102). Since it is neither goods nor services, it is not covered under definition of taxable supply and exempt supply.
So it is clear that Derivatives are not included in the Aggregate turnover under the CGST Act, 2017, hence not be considered in the Turnover for GST Audit Purpose.
Tags: GST, GST Audit, Turnover for GST, Turnover for Income Tax, taxable supply, exempt supply, Goods under GST, Services under GST.